The latest advice on PPP loans

Accountants played a crucial role in helping millions of organizations, most of them small businesses, receive $525 billion in Paycheck Protection Program loans last year.

Now, the PPP is back and businesses will again be looking to CPAs for advice and assistance in accessing the program, which provides forgivable loans that borrowers can use for payroll and other essential expenses as the COVID-19 pandemic continues to roil the economy.

What do CPAs need to know about the new PPP? How is it different from the program that ran for five months before its loan application window closed in August? And what should accountants be doing to help businesses access the $284 billion available in the PPP’s second iteration?

Those topics and more are addressed by Erik Asgeirsson, president and CEO of the AICPA’s business subsidiary CPA.com, and Lisa Simpson, CPA, CGMA, the AICPA’s vice president–Firm Services.

What you’ll learn from this episode:

• When lenders can start submitting PPP loan applications to the U.S. Small Business Administration.
• Details about the new PPP second-draw loans.
• Why many banks won’t be submitting PPP applications at the beginning of the application period.
• What the AICPA has been doing to support the accounting profession with the PPP over the past nine months.
• Why it is important for PPP borrowers to have two paths they can take in pursuing a second-draw PPP loan.
• More information about the CPA Business Funding Portal (see link in resources below).
• What CPAs can do to help businesses prepare for increased SBA scrutiny of PPP loans.
• The importance of helping businesses know their E-Tran number from their first PPP loan.
• Why firms will play a more important role in the second round of the PPP.
• The importance of keeping the intent of the PPP in mind when choosing the accounting method for calculating the decline in gross receipts to determine whether a business qualifies for a second-draw loan.
• Whether a business seeking second-draw PPP loans must spend all its first-draw PPP loan before the second-draw funds are disbursed.
• That some banks may require PPP borrowers to file for forgiveness on their first loan before processing a second-draw application.

Play the episode below or read the edited transcript:

Additional resources

Accounting firms can prepare and process applications for the PPP on the CPA Business Funding Portal, created by the AICPA, CPA.com, and fintech partner Biz2Credit.

AICPA experts discuss the latest on the PPP and other small business aid programs during a biweekly virtual town hall. The webcasts, which provide CPE credit, are free to AICPA members. Go to the AICPA Town Hall Series webpage for more information and to register.

The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.

To comment on this episode or to suggest an idea for another episode, contact Neil Amato, a JofA senior editor, at Neil.Amato@aicpa-cima.com.

Transcript:

Neil Amato: The Paycheck Protection Program, or PPP, reopened January 11 with $284 billion in forgivable loans available to small businesses and other qualified entities impacted by the COVID-19 pandemic. The accounting profession played a critical role in helping clients obtain essential funding during the first iteration, and a PPP reboot means businesses will again look to CPAs for help.

I’m Neil Amato with the Journal of Accountancy. On today’s episode of the JofA podcast, we talk all things PPP with Erik Asgeirsson, the president and CEO of AICPA subsidiary cpa.com, and Lisa Simpson, the AICPA’s vice president of firm services. Those two have been leaders of the AICPA’s efforts to provide PPP support to accountants and the businesses they serve.

Erik and Lisa, thank you for being here today. First, let’s talk about the timeline. What are the key dates that CPAs should know about the rebooted Paycheck Protection Program?

Erik Asgeirsson: Well, thanks, Neil. It’s great to be here on the JofA podcast. And we are, we’re at a critical stage related to this next phase of business relief. Today is Jan. 15, and the SBA is reopening the window for 5,000 eligible lenders. So that means that there are now 5,000 eligible lenders that can submit these next-phase business relief applications, which we’re calling draw one and draw two.

But what this also means is that you need to see if those banks are up and running. Right now, our understanding is that there is a very small percentage of banks that will be submitting applications to the SBA today. And then starting next week, they’re going to open it up to all lenders, basically the national banks. The plan is that they will be eligible to start on Tuesday, January 19. That doesn’t necessarily mean that they will start processing the applications.

Lisa and I are in regular contact with the firms and the banks, as well as the government officials. There are some banks that are taking a more wait-and-see view and waiting to see if there’s more information coming out from Treasury and SBA, while other banks have stood up their applications. I actually just was speaking to a fintech bank, and they’ve already started processing loans today. We can talk more about some of the capabilities later on.

Amato: And we’ll get to that first draw vs. second draw, some of those differences, in a bit. Can you briefly describe the AICPA’s PPP efforts and the role that you have played?

Asgeirsson: I’ll jump in again and then I’m going to hand this off to Lisa. What we’ve been trying to do for the past, now, eight or nine months is really support these businesses and to do the public/private partnership. Treasury and SBA has put up these programs.

The AICPA has played a critical role in trying to drive a common approach and a common understanding of all this legislation and working with the firms on how they’re supporting their clients as well as connecting with the lenders and the payroll community. It’s been a very important collaboration effort. I think broadly our whole goal is to drive a common approach that enables these businesses to get the funding.

With that said, if you go a little bit more into detail on what we’re doing, we’ve been really working hard at the interpretation of the act and understanding the technical components. We’ve also been working on capabilities. So, I think Lisa, as the leader of the firm services area at the AICPA — the PCPS teams are putting a lot of effort into this technical understanding or interpretation of these different programs.

Lisa Simpson: Thanks, Erik. We’ve been working, as Erik pointed out, for the last eight, nine months or so on building resources that small firms and firms of all sizes can use to help their small-business borrowers navigate the very complex regulations and FAQs and IFRs [interim final rules] that are coming out so we can give firms the capabilities to support their clients without having to understand every detailed aspect of the process.

To that end, we started with a loan amount calculator that then became a loan forgiveness calculator. Through our work with Biz2Credit, a fintech lender, we’ve actually integrated our resources into their portal so that CPAs can leverage the resources that we’ve built and then move it up a notch into an automated, integrated platform.

And of course, our town halls that we’ve been doing since April are a huge opportunity for us to give firms and small business owners the latest updates that we have. Sometimes it is breaking news right there on the spot. That’s been a great way for us to stay in touch and to communicate out to our concerned business owners and CPAs helping to support them.

Amato: Lisa, how does the new PPP compare to the old PPP?

Simpson: That’s a great question, Neil. The basic construct of the new PPP, which has been part of the Consolidated Appropriations Act, and then there’s this segment within it called the Economic Aid Act. That’s where the PPP provisions are. Basically, it provides for a reopening of the first-draw program that we all know and love with some new categories of eligible borrowers, mainly 501(c)(6) organizations like chambers of commerce, some news organizations, and some other new categories of borrowers.

So, you’ve got new borrowers. Then you’ve got new categories of eligible expenses for protective equipment for your employees and customers, supplier costs, and some additional expenditures like that. But it also opens up a second-draw opportunity for the most hard-hit first-draw borrowers. Those are businesses who have had a 25% or more decline in gross receipts any quarter in 2020 compared to the same quarter in 2019. That is targeted at smaller borrowers, so borrowers with 300 or fewer employees and a gross-receipts decline of 25% or more.

Amato: What are the most important lessons for accountants from the first PPP, and how should they apply those during this second iteration of the program?

Asgeirsson: It’s a great question. When you think about where we’re at, we probably have close to 1,000 pages of legislation and IFRs and FAQs related to all these programs. This second phase year of PPP is built on the foundation of the first phase, so you have all of this different information that you need to take into account.

This second business relief phase is huge. It’s the second largest business relief act in the history of the United States. It’s bigger than the TARP bailout in 2008. This is very, very significant. When you think about how you want to approach this, firms for this next round are thinking much more about capabilities and processes. There was a lot of chaos back in April of 2020 because we were all trying to get arms around the legislation. What everyone went to were Word documents and Excel spreadsheets. Where we’re at now is you can actually use dynamic platforms. Lisa talked about that and how we’ve integrated a lot of the AICPA guidance capabilities into this fintech platform.

It’s really important that we’re actually closer to the execution of this business relief with the SBA this time around than last time. One thing that’s very important for firms to understand is this is quite different than filing a tax return. When you file a tax return, you follow the rules of the IRS and then the firm works with the client and they file that tax return with the IRS. With this business relief, there’s over 5,000 lenders that actually have their own processes and policies that are somewhat in line with the CARES and PPP Act, but banks can have their own additional policies on top of that.

What we’ve done with the second round is we’re trying to drive this common approach by also having this offering with this fintech company that will allow firms to submit these applications directly into the SBA. We think that will also help drive this overall goal of a common approach.

With that said — and Lisa and I and the team have been talking about this in town halls — you need to have at least two paths. In many cases, the clients are going to work with their original lender, which makes sense. You still should have a centralized process to aggregate all the documents and make sure the calculations are right, and then work with that bank. And, yes, you’re going to have to work with that bank’s processes.

Then you have an alternative approach, which the fintech companies are playing a big role in. One other thing I want to mention is, we’re looking to collaborate with local banks as well. We’ve stated that to firms. If there’s some local banks in their community and they want to work with the firm in a different way, that’s something that we’re thinking about as well. This is all real-time. We’re working on this daily, even though we’ve been working the last seven months putting thousands of hours into these tools to be ready for this next phase.

Amato: Your team has forecast more scrutiny of PPP applicants. How can the applicants and their advisers best prepare for that additional scrutiny?

Simpson: We know that the SBA is going to do checks on the back end once an application is submitted to try to ensure that less fraud is in the system from people trying to create fictitious entities and get through the system. They’re going to be doing more checks against EIN numbers and governmental do-not-pay lists.

On the front end, it’s important that CPAs facilitate the identification of the borrower through making sure that the EIN number for the borrower matches the name of record within the governmental systems. That would be a huge help.

If a borrower is applying for a second round of SBA loans, so a second draw, knowing what the e-tran number — the loan number that the SBA assigned – will also really help speed up the process. And just making sure that they’re providing accurate information so that nothing gets flagged and kicked back to the lender and then gets lost in the system.

Asgeirsson: I could add to what Lisa just said. What you always do as you evolve these programs is you understand what didn’t go well on the first round. Clearly, SBA realizes there were some fictitious applications, so they put steps in place to correct that. We need to be aware of that. That’s probably going to create a slight delay in getting that e-tran number and getting the funding. Our goal here is to really work with the firms to help them interact with the lenders.

This time around, the firms can even play a more important role because their advisory function now is going to be more important than even the first round because you have this 25% decline in gross receipts. That’s going to be, in some cases, more difficult than just aggregating the payroll information to get the loan amount, which was the case with the first phase.

When we look back at 2020, we’re going to think of this as a defining year for the firms related to these small businesses with Main Street. They really played a critical role. This has probably changed the relationships in a very positive way, permanently, for these firms and these small business clients as they’ve helped them navigate through this economic crisis.

Amato: Does a business seeking a second draw PPP loan have to spend all of its first PPP loan proceeds by the time the second loan is disbursed to them?

Simpson: Neil, you’re asking great questions because that is a little point of confusion. The borrower who is looking for a second draw, when they submit their application, they have to say they have used all of the proceeds before the loan proceeds are actually disbursed for that second draw. It does not mean that it’s eligible for 100% forgiveness. It does not mean that they’ve applied for forgiveness.

They could have spent the funds after the end of the first draw covered period on eligible expenses. So, it all has to be spent on eligible expenses. There’s also a requirement that at least 60% of the funds have been spent on eligible payroll. To be eligible to apply, the borrower says they have used or will use all of the funds. To actually receive that disbursement of the second draw, they have to have used the funds for eligible expenses.

Asgeirsson: And, Neil, I’ll just add one extra thing. Many banks are going to request that you apply for forgiveness before you do the second draw. That is not a requirement per Treasury and SBA, but again, that is something that a bank policy position can make. They can decide they want to make sure it’s clear and have all of that in-house. This is, again, something that the firms are just going to have to work out in a case-by-case fashion. There clearly will be many banks that will not be requiring you to file a forgiveness application to get a second draw. Just follow the guidance that Lisa just provided.

Amato: You’ve mentioned the AICPA town halls, how sometimes they are basically breaking news events. What are the top questions or concerns that you’re hearing about at those recent town halls?

Simpson: We had a discussion yesterday in the town hall about that gross-receipts decline that’s required to become eligible for a second draw, and how that decline is actually calculated. We’re CPAs. We love to get into the numbers, and we like our accounting methodology conversations. But with this one, it’s important to keep the intent of the program in mind, which is to help borrowers who’ve been impacted by the pandemic — the most hard-hit borrowers.

In determining what accounting methodology to use for calculating that decline, we’re giving some core concepts to think about. Start with the first one. Does the borrower regularly produce quarterly or monthly financial statements? If they do, what’s the accounting method that they’re using?

You can easily use those financial statements to calculate, to do the comparative period. It doesn’t have to be GAAP. It doesn’t have to be audited, reviewed, compiled. It’s simply what are the internal financial statements of the client. Show it. If they’re not producing financial statements on a regular basis — if they bring you the shoebox at the end of the year and say, “Here. Calculate my tax return,” then maybe it’s just cash receipts.

What are cash receipts on the bank statement compared to the same period from the prior year? And then backing out things like loan proceeds or if the shareholder put in a capital infusion. Those aren’t revenue items, so back that out. It’s just important to be consistent and to understand that we’re not going to get a lot of detailed guidance around how to calculate this. Be consistent, use good judgment, and use what the borrower has available.

Asgeirsson: And, Lisa, just to add to that. Talking about our town halls, I think our record was we had 2,600 questions. What we’ve done is put together these FAQ documents, which you can receive by attending these town halls that address many, many of these questions. I think Lisa summarized it well. There’s a lot of judgment required here.

This is a fast-moving program. We need to assume positive intent. We’ve had a lot of discussions with Treasury and SBA, and they said that that is in line with their philosophy. I think that’s one of the ways some of these questions from the firms will be answered is them using their professional judgment to come to the best possible answer.

Amato: Lisa, Erik, thank you so much. This is a lot of good information. There’s more information available at AICPA.org/SBA.